Generally, rental properties are passive activities and are subject to the passive activity loss rules. The passive activity rules limit your ability to offset other types of income with net passive losses.
The good news is there's an exception: If you actively participate in a rental real estate activity, you can deduct up to $25,000 of your rental loss even though it’s passive. To actively participate means that you:
- Own at least 10% of the property.
- Make major management decisions, such as approving new tenants, setting rental terms, and approving improvements.
This exception phases out as your income rises.
If you have modified Adjusted Gross Income over $100,000, the $25,000 rental real estate exception decreases by $0.50 for every dollar over $100,000.- The exception is completely phased out when your modified adjusted gross income reaches $150,000.
Refer to the TurboTax article Rental Real Estate and Taxes for more information.
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